How Supply Chain Sustainability Across North America Increases Operational Stability
11.19.20
As the effects of Covid-19 continue to shift the supply chain, many companies are considering moving manufacturing to Mexico rather than having sole reliance on China as may have been part of the strategy in the past. The pandemic has limited production and shipping availability on certain commodities due to significant delays and closures overseas. This dependability was already at risk as part of the trade war between the U.S. and China that led to tariff uncertainty and other challenges regarding trade relations between the two countries.
Currently, manufacturers operating in China must factor in the potential of losing products in transit, costs related to supplier replacements, and inaccurate inventories based on stop-and-go shipping delays. Nearshore manufacturing in Mexico minimizes these risks while providing a cost-effective solution with shipping timelines similar to if products were being shipped directly within the U.S.
The effectiveness of maintaining a supply chain closer to home makes more economic sense and offers greater stability for both short-term and long-term business plans. Companies have already found great success with Mexico manufacturing thanks to cost-effective labor and tax advantages, closer proximity to the U.S., and a history of consistency and resiliency across multiple sectors.
Read more: FAQ on Manufacturing in Mexico.
Mexico Manufacturing Focuses on Steadfast Solutions
U.S. companies are reevaluating their options and making plans to expand or fully begin nearshore manufacturing in Mexico in an effort to uphold sustainability and certainty in supply chain activity and regularity in manufacturing costs. When compared to China, Mexico offers cost-effective, close proximity manufacturing solutions that save time and money while consistently delivering on quality.
Cost-Effective Labor and Tax Advantages Remain Key Benefits
Lower labor costs in China have always been one of the prime reasons why manufacturers choose it as a destination for their operations. However, the competitiveness of labor in Mexico, as well as the focus on investing in an educated and highly-skilled workforce, has created more opportunities for manufacturers that want to reap the benefits of cost-effectiveness and productivity when hiring and retaining employees.
Manufacturers also have the advantage of Mexico’s IMMEX/maquiladora program, which offers a 16 percent value-added tax exemption on all temporarily imported tools, materials, and equipment as long as the final goods are exported back to the U.S. Those that choose to partner with a shelter services company can work underneath its already established maquiladora and benefit from this tax advantage right away.
Furthermore, the unique benefit of the Section 321 Program eliminates 100 percent of duties when shipping inventory directly from China to a fulfillment center in Mexico before transporting to the U.S.
Close Proximity Results in Reduced Shipping and Travel Expenses
As manufacturers deal with interruptions in their supply chains due to regional challenges, Mexico has remained consistent in its ability to deliver on quality and quantity. For example, the close proximity of Tijuana, one of the largest manufacturing hubs in North America, makes it easier to deliver consistent shipping times and perform due diligence on quality assurance. Companies operating in a border location can have their finished goods on the U.S. side on the same day, which represents a huge advantage for companies with short sales cycles.
Travel and shipping expenses are less costly when nearshore manufacturing in Mexico simply because of the shorter distance than China. Plus, the proximity allows U.S. manufacturers to oversee supply chain operation more easily and address any minor problems before they become major disruptors.
Consistency Instills Confidence for Future Investments
In addition to cost-effectiveness and closer proximity, manufacturers want assurance of sustainability among their supply chains as a way to secure operational stability. The consistent success of Mexico manufacturing has already led to an increase in foreign investment and the expansion of global companies that already operate industrial facilities throughout different regions.
Additionally, the protection of North American agreements, first NAFTA and now the USMCA, has created a stronger trade relationship between the U.S. and Mexico than China. It encourages manufacturers to diversify their portfolio as they seek new opportunities for growth.